In the Model with Keynesian Sticky Wages and Prices, a Decrease

question 54

Multiple Choice

In the model with Keynesian sticky wages and prices, a decrease in government spending may decrease output more than one-for-one because

• A)the decrease in government spending may worsen inefficiency.
• B)more government spending is always desirable.
• C)the First Welfare Theorem holds.
• D)government spending changes the behaviour of the monetary authority.
• E)consumption increases.

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